US holds breath for post-Enron reports

WALL Street is usually volatile in the quarterly earnings season. During the one that begins this week - the first since the collapse of energy trader Enron - it could be even more so than usual.

A heightened sensitivity to corporate accounting post-Enron increases the chance of surprising disclosures from firms that have not previously come clean.

At the same time, investors are banking on corporate executives providing confirmation the profit picture will improve dramatically by mid-year to justify the recent rise in share prices.

It is time corporate bottom lines in America began to show the effects of running down stocks, healthy spending on services and the rampant corporate cost-cutting of the past year.

'The economy is doing well but up until now we haven't heard talk of a rebound from many chief executives,' says economist Ken Perkins of First Call, the earnings tracking company.

But there is little doubt the bottom has been reached. In the prereleasewarnings season that just ended, there were 448 negative preannouncements, against 560 last quarter while the ratio of negative pre-announcements to positive was less than two to one, compared with five to one a year ago.

First-quarter profits at Standard & Poor's 500 companies are expected to show a 9.2% decline, a fifth straight quarterly slide.

That is less than half the 21.7% fall of the previous quarter. However, the expected improvement is not nearly as good as it looks.

An accounting rule change related to goodwill charges will hurt a few firms that overpaid for acquisitions but the net effect will be to pad overall profits, perhaps by as much as 7%, says First Call. Minus the accounting change, profits could fall by 16%.

There could be isolated pockets of good news. Big internet players, financial firms, consumer staples and the healthcare sector are expected to report sales and profit growth.

What investors want to know is when the US economy's increasing momentum will lift the most depressed sectors - technology, telecoms, cars and consumer cyclicals.

A strong profit recovery, once thought likely this quarter, has now been pushed back to the third.

The economy continues to beat expectations while corporate profits lag behind. Investors the world over will be listening to US executives' forecasts during the next few weeks for evidence that corporate America is ready to catch the economic wave.